What's the difference between CI series short-term notes and REITs

There are many options when it comes to real estate investing, each with their own benefits and risks. Real estate investments usually fall into two categories: physical real estate investments like commercial and residential properties and land, and investments that do not require you to own physical property, such as REITs and crowdfunding platforms. Understanding which options are right for you is crucial before diving in.

We will be looking at and comparing two types of real estate investments: Connect Invest short-term notes and REITs.

Short Term Investment Vs. Long Term Investment

As we look deeper into investment options, it is important to first understand the key difference between short-term and long-term investments. Long-term investments are those that allow you to reach your goals and expand your portfolio over several years with long term appreciation and cash flow instead of making profits in the near future. Short term investments involve ways to invest your money and see returns without losing access to your initial investment for a long period of time, usually over three years or less.

If you opt to take a look into short term investments, it is important to explore the different options you have. Some examples of short term investments include high-yield savings accounts, short-term corporate bonds, peer-to-peer lending, just to name a few.  Debt investing through real estate note investing is another option to consider. 

What Are Connect Invest Short Notes?

Note investing is simply when an investor purchases debt, in this case to fund real estate projects, and the security instrument that’s attached to the debt. This real estate investment strategy is great for beginners, and the perfect opportunity if you’re interested in investing in real estate, without managing a property or buying and selling, as the return investors see is the interest earnings from the debt. Connect Invest offers real estate short notes that help to fund a diverse set of commercial and residential real estate projects across the country for various real estate phases including acquisition, development, and construction, allowing you to diversify your investment portfolio. Your portfolio can be personalized by risk tolerance, amount of investment (a minimum investment of $500), and length of Investment (ranging from 6 to 24 months with a defined exit). This is a great short-term investment strategy to make passive income, even for those with little experience in real estate investing. 

What are REITs?

Now that we have covered debt investing through real estate short notes, it is time to take a look at another form of real estate investment: REITs. A REIT (real estate investment trust) is a company that owns, operates or finances income-producing real estate. REITs provide an investment opportunity for everyday people to benefit from real estate the same way they would invest in other industries – through the purchase of individual company stocks or through mutual funds or exchange traded funds (ETFs). 

REITs must be registered with the SEC and are subject to market regulations, such as the requirement to pay 90 percent of the company’s taxable income in the form of shareholder REIT dividends annually. While some REITs are not publicly traded, these are typically subject to large fines and have more limited options in terms of liquidity and are not subject to the same disclosure requirements as stock exchange-listed or public non-listed REITs.

There are different types of REITs but most follow a similar business model. The REIT leases space and collects rents on the properties, then distributes that income as dividends to shareholders. Mortgage REITs don't own real estate, but finance real estate, instead. A common example of a high-yield REIT is an Equity Real Estate Investment Trust. They  own and operate actual physical properties, which is different from a Mortgage REIT, which is an investment in mortgages and subsequent related assets. Equity REITs can be involved in all-things-real-estate, from acquisition, to property management, to renovation and building, to selling of income property.  

Equity REITs generate money through rental income on their holdings. Because revenue is based on collection of rent, Equity REITs tend to be more predictable and financially stable.

Connect Invest Short Notes vs. REITs

Depending on your goals, both options can be a great way to expand your portfolio and dive into real estate investing. However, there are key differences with each opportunity that you need to consider before investing.

When investing in real estate short notes with Connect Invest, some of the greatest advantages are:

- Passive income

- Lower expenses

- Low barrier to entry

- Defined exit dates

Of course, with any investment, this is subject to some risks such as:

- Borrower may completely default on the loan

- It can be difficult to measure potential profitability

- If property goes to auction and sells for less than the note cost, investor would lose money

- Not insured by FDIC

REITs also have their own benefits:

- Portfolio diversification 

- High reward potential

- Liquid investment, which can be a great safety net for nervous investors

- With some strategy and thought, it’s possible for income from REITs to be taxed at a more favorable rate (REITs investors typically receive profits as ordinary income)

And of course, risks include:

- Can be taxed at a higher rate than some other investments - though there are work-arounds

- Can be quite sensitive to fluctuations in interest rates - much more sensitive than some other investments

- REITs tend to focus on one type of property, which may pose a risk if that sector is subject to fluctuations (such as the hotel industry during the pandemic).

From short-term and high return options such as Connect Invest short notes, to more complex, longer-term investment options like REIT investments, real estate can be a lucrative investment when done correctly.

Connect Invest’s online platform opens the opportunity to easily invest in high-yield real estate notes to non-accredited investors who want to add real estate to their portfolios. Sign up today to take advantage of what we have to offer.